Financial advisers and planners are beginning to reassess insurance bonds as both an income stream and estate planning tool using them to supplement and build out these areas of their financial plan.
While insurance bonds are not new, especially to veteran advisers, they are being re-embraced by retirees and people with complex family situations to create income streams and lock down assets outside a will according to Austock Life, Head of IFA Product and Relationships, Richard Atkinson.
“The insurance bond has been a forgotten investment product which is starting to re-emerge among planners. Money is slowly moving back in to this highly flexible tax structure” said Richard Atkinson.
According to Atkinson financial advisers and planners are using the fixed income guarantee of annuities or Account Based Pensions (ABP) while also looking to insurance bonds to provide control over where funds are invested while retaining full access to those funds.
He stated that annuities were disadvantaged in that they tied up a client’s funds while insurance bonds offered access at any time along with tax offsets in the early years were tax free after 10 years.
He said while this was useful as income for retirees, insurance bonds were also being used to quietly create bequests that were “excluded assets” from a legal estate and therefore beyond the reach of any dispute surrounding an estate or will.
“Another result of using insurance bond nominations for non-estate bequests is that these can be made in secret because these types of inheritances are not subject to probate procedures (and costs) and hence, are not brought within the public domain,” Atkinson said.
This also worked with blended families that required separate estate planning needs and ensured nominated beneficiaries would receive their bequest even if there was a challenge to the estate from other family members.
“The most attractive feature of the insurance bond for estate planning purposes is in the area of beneficiary nomination. the insurance bond is considered to sit outside the control of the deceased’s will, being a non-estate asset, and is not subject to the usual delays associated with probate.”
